Improving Public Debt Management
In the OIC Member Countries
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C) Policy RecommendationsSaudi Arabia is preparing its economy for continued low oilprices. The government has just
recently established a DMO and the legal framework and strategies for public debt
management are in the process of development. It is recommended that the legal framework
will clearly define the authority for borrowing, undertaking debt related transactions and
issuing loan guarantees (see also IMF 2016b). A transparent mediumterm debt management
strategy following the guidelines set by the IMF and the World Bank would strengthen the
confidence of investors.
It is recommended to further develop market based financing in order to prevent a decline of
government deposits in the banking system (IMF 2015a). The establishment of the new DMO
can be accompanied by the establishment of an efficient and marketbased approach for debt
issuance. Moreover, the development of a mediumterm fiscal framework and an integrated
assetliability management approach is important (IMF 2016c). Additionally, it is
recommended to improve data collection and transparency of financial data (IMF 2015b).
Public disclosure may include, for example, technical information about the issuance of bonds.
Because of the comparably low debt level and large deposits of the government, Saudi Arabia
is in a comfortable situation regarding public debt management. The country has a potentially
large domestic investor base, which includes, besides the banking system, the Autonomous
Government Institutions (AGIs) and wealthy individuals (IMF 2016b). So far, however,
government debt is mainly held by banks and pension funds. The issuance of government debt
helps to establish a benchmark yield curve and supports the development of the domestic debt
market (IMF 2016c). Reforms to encourage the development of the sukuk market may help to
diversify the investor base as there is a strong demand for sharia compliant finance products.
Although the reliance on the domestic debt market may promote financial stability, it is
recommended to achieve a balance between domestic and international borrowing, as an overreliance on domestic borrowing by the public sector may lead to crowdingout of private
sector credit. Exchange rate risk is low in Saudi Arabia because the country has a wellestablished exchange rate peg and a large portion of government revenue is denominated in
foreign currencies (see also IMF 2016b).